FUNDS EXPAND NET LONG POSITION: RAW SUGAR ON SEVEN-MONTH PEAK
sugar

FUNDS EXPAND NET LONG POSITION: RAW SUGAR ON SEVEN-MONTH PEAK

Jayant Agro Organics Ltd

*Thailand is harvesting its smallest crop in 10 years

*Global sugar consumption should grow 1.9% in the 2020/21 season


March Nymax raw sugar was at 13.63 cents per pound (454 gram) climbing on Monday to a seven-month peak, December white sugar rose to $378 a ton, amid mainly boosted by funds continuing to expand an already large net long position. Expectations that production in number two exporters Thailand could fall further in 2020/21 due to low cane availability provided background support.

Global sugar production is forecast to fall short of demand by 1.1 million tons next season, according to S&P Global Platts. Bazile’s sugar production reached 29.06 million ton, an increase of 9 million ton on year. In its quarterly report on the global sugar market, Rabobank revised its view for the sugar supply balance in 2019/20 from a deficit of 4.3 million ton to a deficit of 1 million ton.

Global sugar consumption should grow 1.9% in the 2020/21 season (October-September) after a fall of 1.5% in 2019/20 due to the Covid-19 pandemic, which will partially offset an expected production increase. India is facing potential delays in the harvest of its massive 370 million ton of sugarcane crop.

Harvest delays would result in Indian mills producing sugar more slowly at a time when Brazilian sugar production will be winding down and large producer Thailand is harvesting its smallest crop in 10 years, reducing availability of sugar in the global market.

A top Indian sugar federation in Maharashtra is encouraging factories to cut down on production of the sweetener in view of its surplus stock and instead focus on ethanol production. India is estimated sugar production to be lower at 27.3 million ton in the 2019-20 marketing year (October-September), down from previous year due to drought in major growing states of Maharashtra and Karnataka. Domestic sugar production is more than the estimated annual requirement of 25-26 million ton.

For the 2019-20 Indian marketing year ending September, the government has allowed export of 6 million ton of sugar till December, under the quota to help deal with surplus sugar. Out of 6 million ton, 5.7 million ton of sugar have been contracted. And about 5.6 million ton have been moved from mills. The government is providing Rs 6,268 crore subsidy for export of 6 million ton of sugar during the 2019-20 marketing year. Mills have exported sugar to countries such as Iran, Indonesia, Nepal, Sri Lanka and Bangladesh among others.

The pandemic hurt demand by 2.5-million-ton last season compared to the pre Covid-19 outlook and more is expected to come, according to Platts. Thailand's sugar production has been soft this season (2019/20) as well due to weather, which has helped tighten the sugar market considerably. The expiry of the October position on Wednesday would provide a short-term focus with a large delivery expected. The open interest, as of Sept. 24, stood at 77,610 lots.

(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 30-9-2020

Tri Une Impex Consultant

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